Korea Braces for New Era of Pax Sinica
China Expected to Overtake US in 30 Years
By Kim Jae-kyoung
Staff Reporter
The year 2008 was a milestone year for China and the United States. As U.S. capitalism has been careening on the edge of a meltdown in the wake of the Wall Street crisis, China has witnessed capitalism, unleashed 30 years ago in China by Deng Xiaoping, successfully take root in the Communist country.
In recent years, U.S. hegemony has been gradually eclipsed by the rise of China, and many economists and pundits have warned that this transition is a harbinger of the collapse of Pax Americana and the rise of Pax Sinica.
The root causes for the U.S. economic debacle were chronic twin deficits in fiscal and current accounts accumulated in recent decades coupled with the over-issuance of money and treasury bonds to offset such deficits.
The U.S. is now a country saddled with massive debt, while China is its largest creditor, having purchased U.S. treasuries with dollars it earned by exporting its goods to the U.S. If this trend continues, it will eventually lead to the U.S. dollar collapsing and losing its status as the key currency.
According to the International Monetary Fund (IMF), the U.S. budget deficit is forecast to reach $2 trillion next year and its current account shortfall is estimated to hit $664.1 billion this year, the largest in the world. China, meanwhile, is expected to record the world's largest current account surplus, with $399 billion.
Harvard University Professor Niall Ferguson once described this shift as ``Chimerica,'' referring to a new era of coexistence between China and the U.S.
He said that the forced collaboration between China's savers and American consumers has been the growth engine of the global economy over the past decade. The two account for 13 percent of global territory, a fourth of the world's population and a third of global GDP.
However, the U.S. credit crisis has tipped the balance in favor of China, raising expectation that its power and influence will dominate the U.S. in coming decades.
Ferguson said in September that with China decoupled from the U.S., the end of Chimerica seems near and China will overtake the U.S. in two decades, which means the emergence of "Pax Sinica," an era when China will dominate the world order.
When Will China Overtake America?
No one doubts that China will become a major force in the global scene in the future. The world is witnessing the Pax Americana-based world political and economic system being slowly shifted to a Pax Sinica-based system. It is not a matter of choice, but a matter of time and destiny.
The consensus among world-renowned economists is that China will overtake the U.S. in 30 years at most.
Even though China is losing growth momentum in the wake of the global economic crisis, its economy is expected to sustain more than eight percent growth per year, bolstered by huge domestic demand.
``In terms of economic size or gross domestic product (GDP), China is likely to become the number one economy in 30-35 years from now,'' Mauro F. Guillen, director of The Lauder Institute at The Wharton School of Business, told The Korea Times.
``The rise of China, whether it becomes dominant or not, has shifted the center of gravity of global politics and economics toward the Pacific,'' he added. ``Also, China is developing strong links in Africa and Latin America. China is changing the face of the global economy more than any other country since World War II.''
ING Group Asia chief economist Tim Condon echoed the view, saying, ``If China grows for the next 20 years by the average rate of the past 10 years, and the U.S. grows by the average rate of the last 10 years, China will overtake the U.S. in 20 years.''
``But if China's growth rate is three-quarters of the rate of the last 10 years, it would take another 10 years, namely to 2038, to surpass the U.S.,'' he added. ``I think 30 years is a best guess.''
According to Goldman Sachs report in July, China will dominate the global economy in 2050 with a GDP of $70 trillion, followed by the U.S., India, EU-5, Brazil and Russia.
The expanding middle class in China, with a population of 1.3 billion, is expected to support the world's fastest-growing economy in the coming decades, underpinning its robust economic growth.
In its 2006 special report, McKinsey & Company predicted that in the next 20 years, the world would see a huge middle class with enormous spending power emerge in China's cities.
The global consulting firm forecast that by 2025, China's upper-middle class will account for a staggering 520 million people, more than half of the expected urban population of the communist country.
However, some countered that although China will certainly become more and more of a superpower, it will not rival the U.S. any soon.
``Unless someone really messes things up in the U.S., I believe the U.S. is blessed to remain the center of the world for the foreseeable future,'' Boston Consulting Group Seoul office head Steve Chai told The Korea Times.
``One big U.S. advantage is that it does not have a `proud' history. People are not constrained by the past, they are trained to look and think forward,'' he added. ``The U.S. is a natural magnet for the world but when will people be anxious to immigrate to China?''
Elephant & Ballerina Strategy
Since Korea is sandwiched between the U.S. and China, the power shift can be both a blessing and a curse, so every Korean entity ― the government, businesses or individual persons ― should brace for Pax Sinica for survival.
Depending on how it copes, Korea's future could turn out very differently. It should play a broker's role while seeking to capitalize on China's rapid growth.
``The rise of China is both an opportunity and a threat to Korea,'' London-based Jim O'Neill, managing director and head of Goldman Sachs Global Economic Research, and who coined the acronym BRIC, referring to the fast growing developing economies of Brazil, Russia, India, and China, said via e-mail.
``Korea should try to undertake policy steps to boost productivity and move to higher value added businesses, and let the lower value added businesses, especially in manufacturing shift elsewhere,'' he said.
Guillen of the Wharton School said, ``Korea should continue investing in education, infrastructure, R&D, and the like. It has the potential of being a broker between the U.S. and China. It can be a junior partner in an increasingly important trans-Pacific relationship.''
``Korea's location is superb. It is more advanced technologically than China, especially in electronics. Korea could position itself with Japan as two key Northeast Asian economies that profit from trade with China and from complementing China's skills,'' he added.
Market Force Company CEO James Rooney suggested an interesting approach dubbed the ``Elephant and Ballerina'' strategy
``Let's assume that Korea is a ballerina and China is an elephant considering their economic size and population. When you come across an elephant in the jungle, there are not many ways you can survive,'' said Rooney, who is also vice chairman of Seoul Financial Forum.
``You can let her pass you by. But in this case, you will come across her again in the future. `Hiding under the elephant' can be another option. But it is still dangerous as you can be trampled to death,'' he added. ``The last option is to ride on the back of the elephant.''
``Doing so, Korea can boost its economy by capitalizing on the China's high economic growth,'' he added. ``The most critical thing for Korea to achieve, both now and for the next one hundred years into the future, is to actively integrate itself into the Chinese economy through numerous forms of economic activity, including manufacturing, logistics, services, finance, tourism, education, culture, and others.''
Korea is sitting right next to China, which cannot afford to, and will not and does not need to, allow its domestic economic development to be derailed by restructuring problems that are occurring on the other side of the Pacific Ocean.
While China's exports to the U.S. may decrease, it would only oblige China to focus more energy on the healthy development of its domestic market and other attractive export markets. Korea has every reason to participate.